On Tuesday, U.S. President Donald Trump – having just returned to the White House hours earlier – tweeted an “October surprise” that will likely shape the outcome of the November election.
Trump tweeted: “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.”
What was Trump’s rationale behind doing so, and how will this impact investors?
Since the coronavirus pandemic, the United States has shed over 22 million jobs – less than half of them being refilled. This means that over 11 million Americans are currently unemployed and, with the vast majority of these Americans living paycheck-to-paycheck, millions are now on the verge of defaulting on debt obligations and have scaled back spending.
This is the domino that effects everyone. Two-thirds of the U.S. economy is based on consumer spending – meaning that if American consumers stop buying, the economy stagnates. Prolonged stagnation will only mean the permanent loss of jobs, which will mean the destruction of permanent demand. Exporters to the U.S., like China, will immediately feel the pinch as spending slows, impacting their domestic economies and causing a shock to global markets.
Following Trump’s announcement, the benchmark U.S. equity index, the S&P500, sold-off sharply – as did the other indices and commodities such as gold.
Trump may be betting that those that are in need of this economic stimulus won’t blame him for financial positions, but rather Democrats in Congress. While it is a bet that would have been plausible if he had come out in support of the stimulus publicly and argued that the Democrats were not compromising enough, this is not the route he has taken.
The lack of a second stimulus check for all Americans will be a major blow to millions. Will they blame anyone else but the man who tweeted that he would delay its consideration until after the election? A full month from now, when another month of rent and expenses will have come and gone past due, I can’t see how any voter would blame anyone but Trump.
Perhaps a self-own for the record books, Trump’s latest move has surprised many.
On the surface, it appears to be a near-certain mistake on his part – but what is his strategy here? Perhaps he has seen polls putting him down 15% nationwide and figures he needs to flip the script on Biden.
His party controls the House of Representatives, after all – perhaps this will be enough to assign blame to the Democrats? At present, voters adopting this mindset seems unlikely, but this may also just be the unorthodox move that pays dividends Trump is desperately looking for in November.
